I do think we're getting to the point that middlemen don't have much value add. Economics even suggests they don't add value I think. Possibly neutral markets, payments, and logistics should just be a public service.
The biggest thing is disputes. I have no problem with an escrow service asking for a cut if I want to use them. The creepy thing is how that escrow built into credit cards is forced on every little transaction.
I have had to fight hard for disputes, even with “premium” credit cards like Amex Platinum. I’m not talking about “not as described” bs, but being asked over and over for the same info to wear me down.
I recently ordered some snacks from another country and after 3 months the vendor stopped responding while never having sent anything. When I asked for a chargeback, my claim was denied because I didn’t have proof they didn’t send anything! I literally had an email from them that said they are backed up and unable to send stuff.
"Value add" is the wrong framework for thinking about these sorts of services. The reason Visa and MasterCard exist is that there's value in relationships. If you want to have your accounting system available in all stores, you have to talk to Visa or MasterCard. Conversely, if you run a store and want to accept payments, you only have to deal with Visa and MasterCard. Sure, "public service", but run by who? Visa and MasterCard are cross border, good luck getting any sort of international coalition of governments to build a payments system in the current political climate.
I wish they would face litigation for banning the sale of large swaths of content (or even banning the content altogether on sites relying on donations/subscriptions to survive). Paypros have no business being censors.
One mans "censor" is anothers "brand protection". Given that they are currently allowed and expected to decide who gets to use their payment networks, it seems pretty obvious to me that they won't allow extreme content next to their logos. If you made clear rules that specify when they have to extend service, I'm sure they would love to relinquish that responsibility. Visa has no moral objection to what you do, as long as they make money and aren't exposed to political pressure.
It's not different, many countries already have their own version of it, you just don't hear about them. India's UPI has more users but you don't hear about it.
Maybe we hear about it because, it's right in the US' backyard and the biggest country there is Brazil from which pix comes from. All these payment systems threaten visa and Mastercard but pix is the largest in the US' backyard because the country it comes from, Brazil, is the largest there.
And it's also government run, dun dun dun. The us hates anything that is government run. That's why they hate china and communists and socialism so much.
UPI used to be good, but they started adding charges after Visa and Mastercard lobbied D.C. probably with huge bribes. And the Indian government is spineless against D.C.
I've noticed growing use of similar options in the UK already, like Payit and truelayer (often shown in checkout via "Pay by bank"). Ebay and Whetherspoons are examples of places providing these options.
I think the problem is that merchants hate the card networks and consumers generally like them and there are a lot more consumers than merchants. If you are a politician, which block of voters are you going to side with?
They like the card networks because they are lured by point schemes, effectively money charged to the merchants and then shared back to cardholders. Consumers would flip in a heartbeat if shops were allowed to offer discounts to those not using credit cards.
I used to by all my PC parts from a shop that had a 5% discount for cash purchases. It was the sort of shop that was just a counter with all the merch hidden in the back. I don't know how they kept the CC companies from knowing but maybe 40% of their business was cash purchases (circa 2019).
What seems to be getting lost is that the acquirer, not the payment network, sets the Merchant Discount Rate. The acquirer is also the merchant’s direct payments provider.
Yet the acquirers seem to be always absent from these lawsuits.
It seems like many of these prosecutors/plaintiffs just want to go after the largest organizations in a given industry, almost irrespective of their culpability. It seems to me that most 'consumer protection' lawsuits seem to be more focused on obtaining publicity for the lawyers than actually doing anything useful, but getting a few settlements from larger organizations is a lot easier than actually going after wrong-doers, so it is a somewhat sensible strategy if the goal is to 'win' as much money as possible.
But isn't most of the fees a result of the interchange rate, set by visa? The fact that stripe or whatever charges a fee on top, which contributes to the overall rate hardly seems relevant, unless you think all the payment processors are colluding to set their markups higher.
It has been awhile since I dealt with credit card networks, but the parent comment confuses me as well. Before, most of the fees go to the issuer, the network takes about the same as the acquirer (roughly):
Network gets swipe fees, and a percentage of the interchange
Issuers get majority of interchange, and carrying interest and fees
Acquirer gets the markup plus whatever admin/maintenance fees
I don't think payment processors like Stripe are colluding, they just have a difficult task. Card and bank payments are very complicated and regulation-heavy. I do get the feeling that credit cards and banks are colluding.
That's how we do it in the US. We let industries consolidate and merge until they can raise prices with abandon, then chip back away at it with lawsuits.
I hope more things like this comes to light, as we have seen how mastercard and visa in union has moved censorship among things around the world, which by the way is illegal, but due to their monopoly could still carry out and they did.
So the hope is that new or one of the other brokers step up and hopefully their ethics are better.
Amex does this as well and it’s a mixture of internal opinions of executives, board, major shareholders, as well as the US federal government just telling them (see operation chokepoint for just one variation), as well as chargeback and fraud rates in some industries just validating personally held opinions
Broadly, the interlocking restraints set and maintained by the defendants have forced merchants that accept any Visa and Mastercard credit card to accept all such cards, regardless of cost, thereby eliminating any incentive for issuing banks to compete by lowering their fees, the suit says. The lawsuit claims the challenged restraints have also prevented merchants from being able to steer customers to lower-cost payment options—for instance, by surcharging based on a customer’s use of a particular card. These and other restraints have prevented competition among issuing banks and other credit card networks, allowing the financial giants to raise their fees every year “without consequence,” the case alleges.
Reminds me of how the cardholder agreements used to all prohibit adding a credit card surcharge to cover the fees. Some of the fees go back to the customer as rewards, so customers especially had no reason to use cash. Now that practice is illegal, and many places are 3-5% cheaper with cash, which is in line with the fees and usually much larger than credit card rewards.
That sounds a lot like they want to be able to say which banks cards they want to accept (the "forced merchants that accept any Visa and Mastercard credit card to accept all such cards" part).
It's most likely primarily about different credit card "brands" like Visa infinite, signature etc. These have different benefits for customers (like cashback and points) and higher fees for merchants.
um, the same system we have today but with less rent extraction
and don't pretend like it's not possible, it's obviously possible: take the system and lower the fee to something proportional to the price of providing the service
if credit card rewards programs have to go to make it economically viable -- awesome, that would be a second win.
Okay, so which side is in the majority? The people who have credit card debt or the people who are using rewards programs in a way that doesn't put them in an objectively worse position? Let's help whichever side is larger.
The current status quo is a result of free association. If people prefer to have credit card debt or use rewards programs poorly then I have no issue with continuing in this manner.
The fees are larger than the rewards. Most business people pay with credit card is competitive. Retail and restaurants absolutely do pass savings on to customers because of how high competition is.
Wouldn't high fees be competitive? A lot of incentive to compete there. Anticompetitive would be setting the fees too low to compete with.
I guess the point being there is probably a better reason for the high fees than the company trying to be anticompetitive, Or perhaps better said as a better reason for being anti competitive than high fees. Monopolistic lock in? Regulatory Capture? The problem is, that this blames the government instead of the company.
You've got it backwards, their anti-competitive practices is what allows them to charge such high fees:
> A class action lawsuit alleges Visa, Mastercard and some of America's largest banks have conspired to artificially inflate merchants' credit card transaction fees.
If they didn't conspire together and actually competed then they wouldn't be able to charge such high fees as they would surely try to undercut each other.
IMO They (Visa et al) have been desperately clinging to the outside of their speeding gravy train for way too long, and it's only a matter of time before they run out of track underneath them, so they're trying every trick in the book to keep things running.
Any new competitor could spell the end for them, so making it astronomically difficult to onboard enough people is so far working out for them.
Exactly. Courts will ask why they can charge high fees and not lose customers. The answer will be that they are anticompetitive or behaving as a cartel or monopoly would.
The way these deals are structured (including things like requiring a merchant to accept all cards), the business accepting the card cannot use price (or anything else, really) to signal to the person picking which card to use. The incentives are all from the issuer to the consumer in the form of various kickbacks.
This means that the issuer can manipulate the consumer into doing things bad for the business, and the business has no way to respond to the very high fees it is charged.
>The problem is, that this blames the government instead of the company.
Both are true though right? The company needs to be held accountable for price collusion by the government. Government not acting due to lobbying (i.e. bribes).
I do think we're getting to the point that middlemen don't have much value add. Economics even suggests they don't add value I think. Possibly neutral markets, payments, and logistics should just be a public service.
As AI compute will be within 15 years.
The biggest thing is disputes. I have no problem with an escrow service asking for a cut if I want to use them. The creepy thing is how that escrow built into credit cards is forced on every little transaction.
I have had to fight hard for disputes, even with “premium” credit cards like Amex Platinum. I’m not talking about “not as described” bs, but being asked over and over for the same info to wear me down.
I recently ordered some snacks from another country and after 3 months the vendor stopped responding while never having sent anything. When I asked for a chargeback, my claim was denied because I didn’t have proof they didn’t send anything! I literally had an email from them that said they are backed up and unable to send stuff.
PayPal does this well with friends & family transfers.
Zelle is like this too. Though everything seems to be reversible in some way, not cause of disputes but because of unauthorized charges.
"Value add" is the wrong framework for thinking about these sorts of services. The reason Visa and MasterCard exist is that there's value in relationships. If you want to have your accounting system available in all stores, you have to talk to Visa or MasterCard. Conversely, if you run a store and want to accept payments, you only have to deal with Visa and MasterCard. Sure, "public service", but run by who? Visa and MasterCard are cross border, good luck getting any sort of international coalition of governments to build a payments system in the current political climate.
SEPA?
I wish they would face litigation for banning the sale of large swaths of content (or even banning the content altogether on sites relying on donations/subscriptions to survive). Paypros have no business being censors.
One mans "censor" is anothers "brand protection". Given that they are currently allowed and expected to decide who gets to use their payment networks, it seems pretty obvious to me that they won't allow extreme content next to their logos. If you made clear rules that specify when they have to extend service, I'm sure they would love to relinquish that responsibility. Visa has no moral objection to what you do, as long as they make money and aren't exposed to political pressure.
I think a lot of this is starting to bubble up to the surface after PIX made headlines[1]
[1] https://whatispix.com
Sorry, how is PIX different than a plethora of similar P2P and p2b solutions already present in Europe?
It's not different, many countries already have their own version of it, you just don't hear about them. India's UPI has more users but you don't hear about it.
Maybe we hear about it because, it's right in the US' backyard and the biggest country there is Brazil from which pix comes from. All these payment systems threaten visa and Mastercard but pix is the largest in the US' backyard because the country it comes from, Brazil, is the largest there.
And it's also government run, dun dun dun. The us hates anything that is government run. That's why they hate china and communists and socialism so much.
UPI used to be good, but they started adding charges after Visa and Mastercard lobbied D.C. probably with huge bribes. And the Indian government is spineless against D.C.
Surely the UK can also pull this off given how quick faster payments is. I'm always surprised at how we just stuck with Visa
It is the difference between Credit and Debit cards.
I could see Debit Cards being replaced by direct transfers.
The issue is what happens if who you pay too does not provide the srvice or just runs off with the money.
Under UK Law the customer can deal with the Credit Card issuer and get their money back with a direct payment it is npot always possible.
For debit cards I think the issue will refund if fraudelent but might take a battle. With direct payments the customer has a much harder job.
I've noticed growing use of similar options in the UK already, like Payit and truelayer (often shown in checkout via "Pay by bank"). Ebay and Whetherspoons are examples of places providing these options.
I think the problem is that merchants hate the card networks and consumers generally like them and there are a lot more consumers than merchants. If you are a politician, which block of voters are you going to side with?
They like the card networks because they are lured by point schemes, effectively money charged to the merchants and then shared back to cardholders. Consumers would flip in a heartbeat if shops were allowed to offer discounts to those not using credit cards.
I used to by all my PC parts from a shop that had a 5% discount for cash purchases. It was the sort of shop that was just a counter with all the merch hidden in the back. I don't know how they kept the CC companies from knowing but maybe 40% of their business was cash purchases (circa 2019).
> Consumers would flip in a heartbeat if shops were allowed to offer discounts to those not using credit cards.
We must be very different consumers.
Also, many places already do effectively this, they charge a surcharge for using a card.
Thanks for posting. Interesting, I will try to read more this stuff.
What seems to be getting lost is that the acquirer, not the payment network, sets the Merchant Discount Rate. The acquirer is also the merchant’s direct payments provider.
Yet the acquirers seem to be always absent from these lawsuits.
It seems like many of these prosecutors/plaintiffs just want to go after the largest organizations in a given industry, almost irrespective of their culpability. It seems to me that most 'consumer protection' lawsuits seem to be more focused on obtaining publicity for the lawyers than actually doing anything useful, but getting a few settlements from larger organizations is a lot easier than actually going after wrong-doers, so it is a somewhat sensible strategy if the goal is to 'win' as much money as possible.
But isn't most of the fees a result of the interchange rate, set by visa? The fact that stripe or whatever charges a fee on top, which contributes to the overall rate hardly seems relevant, unless you think all the payment processors are colluding to set their markups higher.
It has been awhile since I dealt with credit card networks, but the parent comment confuses me as well. Before, most of the fees go to the issuer, the network takes about the same as the acquirer (roughly):
Network gets swipe fees, and a percentage of the interchange Issuers get majority of interchange, and carrying interest and fees Acquirer gets the markup plus whatever admin/maintenance fees
Here's what I found for a reference: https://cmspi.com/back-to-basics-card-network-models-and-glo... which tracks with my experience.
I'm open to be corrected though.
I don't think payment processors like Stripe are colluding, they just have a difficult task. Card and bank payments are very complicated and regulation-heavy. I do get the feeling that credit cards and banks are colluding.
That's how we do it in the US. We let industries consolidate and merge until they can raise prices with abandon, then chip back away at it with lawsuits.
I hope more things like this comes to light, as we have seen how mastercard and visa in union has moved censorship among things around the world, which by the way is illegal, but due to their monopoly could still carry out and they did.
So the hope is that new or one of the other brokers step up and hopefully their ethics are better.
Illegal where?
Amex does this as well and it’s a mixture of internal opinions of executives, board, major shareholders, as well as the US federal government just telling them (see operation chokepoint for just one variation), as well as chargeback and fraud rates in some industries just validating personally held opinions
What's the intended outcome?
If you break up the Visa and Mastercard cartels, does this San Diego pizzeria then have to decide what cards to accept on a bank-by-bank basis?
The opposite of what's being alleged. From TFA:
Broadly, the interlocking restraints set and maintained by the defendants have forced merchants that accept any Visa and Mastercard credit card to accept all such cards, regardless of cost, thereby eliminating any incentive for issuing banks to compete by lowering their fees, the suit says. The lawsuit claims the challenged restraints have also prevented merchants from being able to steer customers to lower-cost payment options—for instance, by surcharging based on a customer’s use of a particular card. These and other restraints have prevented competition among issuing banks and other credit card networks, allowing the financial giants to raise their fees every year “without consequence,” the case alleges.
Reminds me of how the cardholder agreements used to all prohibit adding a credit card surcharge to cover the fees. Some of the fees go back to the customer as rewards, so customers especially had no reason to use cash. Now that practice is illegal, and many places are 3-5% cheaper with cash, which is in line with the fees and usually much larger than credit card rewards.
That sounds a lot like they want to be able to say which banks cards they want to accept (the "forced merchants that accept any Visa and Mastercard credit card to accept all such cards" part).
It's most likely primarily about different credit card "brands" like Visa infinite, signature etc. These have different benefits for customers (like cashback and points) and higher fees for merchants.
Legislation to cap fees.
The European Union caps consumer card interchange fees at 0.2% for debit cards and 0.3% for credit cards
https://eur-lex.europa.eu/EN/legal-content/summary/fees-for-...
And the US already capped debit card fees back in 2010:
https://en.wikipedia.org/wiki/Durbin_amendment
This is explicitly about credit card fees.
Can the courts cap fees? I thought that would have to be something congress does.
Right. All the courts can do is use the high fees as evidence of monopoly.
um, the same system we have today but with less rent extraction
and don't pretend like it's not possible, it's obviously possible: take the system and lower the fee to something proportional to the price of providing the service
if credit card rewards programs have to go to make it economically viable -- awesome, that would be a second win.
I like rewards programs and disagree that it would be a win. Your suggestion puts me in an objectively worse position.
Okay, so which side is in the majority? The people who have credit card debt or the people who are using rewards programs in a way that doesn't put them in an objectively worse position? Let's help whichever side is larger.
Why would we help whichever side is larger?
The current status quo is a result of free association. If people prefer to have credit card debt or use rewards programs poorly then I have no issue with continuing in this manner.
same. pick a card w good rewards, pay the statement balance to $0 every month, reap some benefits while strengthening your credit score.
The fees are larger than the rewards. Most business people pay with credit card is competitive. Retail and restaurants absolutely do pass savings on to customers because of how high competition is.
Wouldn't high fees be competitive? A lot of incentive to compete there. Anticompetitive would be setting the fees too low to compete with.
I guess the point being there is probably a better reason for the high fees than the company trying to be anticompetitive, Or perhaps better said as a better reason for being anti competitive than high fees. Monopolistic lock in? Regulatory Capture? The problem is, that this blames the government instead of the company.
You've got it backwards, their anti-competitive practices is what allows them to charge such high fees:
> A class action lawsuit alleges Visa, Mastercard and some of America's largest banks have conspired to artificially inflate merchants' credit card transaction fees.
If they didn't conspire together and actually competed then they wouldn't be able to charge such high fees as they would surely try to undercut each other.
IMO They (Visa et al) have been desperately clinging to the outside of their speeding gravy train for way too long, and it's only a matter of time before they run out of track underneath them, so they're trying every trick in the book to keep things running.
Any new competitor could spell the end for them, so making it astronomically difficult to onboard enough people is so far working out for them.
Exactly. Courts will ask why they can charge high fees and not lose customers. The answer will be that they are anticompetitive or behaving as a cartel or monopoly would.
The way these deals are structured (including things like requiring a merchant to accept all cards), the business accepting the card cannot use price (or anything else, really) to signal to the person picking which card to use. The incentives are all from the issuer to the consumer in the form of various kickbacks.
This means that the issuer can manipulate the consumer into doing things bad for the business, and the business has no way to respond to the very high fees it is charged.
>The problem is, that this blames the government instead of the company.
Both are true though right? The company needs to be held accountable for price collusion by the government. Government not acting due to lobbying (i.e. bribes).
I think it’s a good idea .wonderful